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bigduckontax
bigduckontax, Accountant
Category: Tax
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I am considering giving my daughter a loan to buy a property.

Resolved Question:

I am considering giving my daughter a loan to buy a property. She may then rent a spare room and generate income on this loan. Could you please confirm that the income received will be my income tax liability on the loan?
Thanks
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Loaning moneys to your daughter has no tax consequences unless she pays you interest on the loan in which case that interest, and that interest only, would form part of your income and be subject to Income Tax (IT) in your hands. Repayment of the loan is also outside the scope of UK taxation. Assuming that your daughter has bought a house that is her concern not yours, although to protect yourself you should register a charge on the property to the value of the loan at the Land Charges Registry to protect your position should something dramatic happen. Parents and children do fall out, you know! As it is her house she can rent out a spare room. Under the Rent a Room Scheme rental up to 7.5K is tax free in her hands and you and your taxation position do not come into the equation at all. I would not advise you to include yourself as an owner with her on the deeds. Doing so would expose you to Capital Gains Tax (CGT) when the property is ultimately sold. I know of a father who bought a house in his own name for his daughter at uni and she stayed for years after. When it was sold up he was landed with a CGT bill of 39K for a house he had never lived in nor received any rental; ouch! I do hope my answer has cleared the air for you.
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Customer: replied 1 year ago.
If I buy a property in join names between my son and daughter so they are both registered owners if at a later date we want to transfer the registered ownership to either one is this possible and what would be the process. Can we transfer the registered title or does the property need to be sold?Interesting, so she can take £7.5k tax free renting a room and if I take loan interest over and above this then it is my income tax liability?
Customer: replied 1 year ago.
Also if I loaned the money to both my son and daughter so they are both registered owners is it possible in the future to transfer the ownership to either one? i.e. transfer registered title from two names to one? is there a tax liability in doing this?
Expert:  bigduckontax replied 1 year ago.
If you buy the property in joint names then you run the CGT risk I mentioned in my original reply. This would kick in when you change the title. The Rent a Room Scheme allows her to take a rental of up to 7.5K tax free. That is on her tax account. Tou do not come into it at all. If she repays the loan in installments then that loan repayment is outside the scope of UK taxation. However, if the repayment includes an element of interest then that interest is taxable in your hands and must be declared on your annual self assessment tax return. If you make your son and daughter Joint Tenants ie owning 50/50 then a transfer between the two f them is possible. Whether CGT will kick in on the sibling making the transfer will depend on a number of factors, not the least occupation or ownership of other landed property elsewhere. For example if they both lived in the house as their sole or main domestic residence then on transfer Private Residence Relief (PRR) would relieve any CGT liability at 100%. Thank you for your support.